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2020 (3) TMI 448 - HC - VAT and Sales TaxInput Tax Credit (ITC) - Restriction of ITC to the extent of CST payable in case of interstate sale - Restriction of ITC in case of goods consumned or burned but not transferred into or existent in finished product - Validity of amendments brought in Section 18 of the JVAT Act, 2005. - Retrospective effect or effective prospectively. Whether the amendments made to the provision of Section 18(4)(ii) and Section 18(4)(iii) of the JVAT Act vide amendment notification dated 8.2.2016, to the extent proviso has been inserted by providing, interalia, that ITC shall be available only in respect of tax paid on CST sales under section 8(1) of the CST Act, and the balance ITC shall be forfeited is wholly arbitrary, confiscatory in nature being violative of Article 14 of the Constitution of India? - Whether the retrospective effect granted with effect from 23.09.2015 to the substituted proviso inserted to clause(ii) and (iii) of sub- Section 4 of Section 18 of the JVAT Act, vide Amending Act dated 8.2.2016 has an effect of interfering with the vested right already accrued in favour of writ petitioners in respect of purchase and sales made between the period 23.09.2015 to 07.02.2016, and, is liable to be struck down as being violative of Articles 14 and 19(1)(g) of the Constitution of India? - HELD THAT - The substituted provisos inserted vide notification dated 08.02.2016 are not clarificatory in nature and, has an effect of curtailing the vested right of the dealers in respect of purchases and sales of goods made between the period 23.09.2015 to 07.02.2016 and is, thus declared ultra vires to the extent said provisos have been given retrospective effect. In other words, these provisions are held to be intra vires w.e.f. 7.2.2016 only and onwards. Whether Amendment carried out in sub-section 8 of Section 18 of the JVAT Act, wherein a new clause (xviii) has been inserted after existing clause (xvii) of the aforesaid section, is ultra-vires and violative of Articles 14 and 19(1)(g) of the Constitution of India? - HELD THAT - By virtue of said amendment the State Government is putting restrictions on the availability of ITC on such raw materials which are consumed or burnt up and not found existent in the finished product. Thus, specified class of raw materials has been excluded for being eligible for claiming benefit of ITC. The aforesaid decision being in the nature of policy decision, wherein reasonable classification has been made between two kinds of raw material, that is , raw materials found existent in the finished product and raw materials consumed or burnt up and not being found in the finished product, the same cannot be said to be unreasonable classification attracting the vice of Article 14 of the Constitution of India. Thus, the challenge to the amended provisions contained under section- 18(8)(xviii) fails having no merit. Whether insertion of Rule 26(11A) under the JVAT Rules, vide notification dated 17.2.2017 with retrospective effect i.e. from 01.04.2015, is ultra-vires to the provision of Section 94 of the JVAT Act, being beyond the powers of the delegate i.e. the State of Jharkhand? - HELD THAT - The provision of Section- 94 of the JVAT Act, 2005 does not confer any power to the State Government to frame any Rule with retrospective effect and thus, the State Government, while enacting the machinery provision for giving effect to the amendment carried out in clause(ii) and (iii) of sub-section-4 of Section 18 of the JVAT Act with retrospective effect i.e. w.e.f. 1.4.2015 have exceeded its jurisdiction, and to that extent amended Rule is ultra vires the provisions of Section 94 of the JVAT Act, 2005 - Accordingly, we declare that Amendment carried out under the JVAT Rules, 2006 vide amending Notification dated 17.2.2017 by which Rule 26(11A) was inserted shall have only prospective operation with effect from 17.2.2017 and the provision contained in the aforesaid notification to the extent it gives retrospective application of the said Rule is hereby quashed and set aside as beyond the competence of the delegate i.e. the State Government. Whether in absence of machinery provision for giving effect to the amendments made in section 18(4)(ii) and 18(4)(iii) of the JVAT Act, upto 16.2.2017, the said provisions are unworkable and cannot be acted upon? - HELD THAT - In absence of machinery provision having been prescribed by the State of Jharkhand for giving effect to the proviso inserted in clause(ii) and (iii) of sub-section 4 of Section 18 of the JVAT Act, the said provisos were unworkable between the period 23.09.2015 till 16.02.2017 and during the said period no assessment could be made and for the said period no forfeiture of ITC can take place and the computation of ITC is to be made for the said period in terms of existing Rule i.e. Rule 26(5) JVAT Rules, including the formula prescribed therein. Any assessment order, scrutiny order, etc, passed in respect of the writ petitioners having an effect of forfeiture of ITC are hereby declared illegal and quashed for the period 23.09.2015 till 16.2.2017.
Issues Involved:
1. Validity of the amendments to Section 18(4)(ii) and Section 18(4)(iii) of the JVAT Act, particularly regarding the retrospective effect. 2. Constitutionality of the amendment to Section 18(8) of the JVAT Act. 3. Legality of the retrospective application of Rule 26(11A) under the JVAT Rules. 4. Workability of the amended provisions in the absence of machinery provisions. Issue-wise Detailed Analysis: Issue I and II: Validity of Amendments and Retrospective Effect The amendments to Section 18(4)(ii) and Section 18(4)(iii) of the JVAT Act were challenged primarily on the ground of their retrospective effect. The petitioners argued that the amendments introduced a forfeiture of Input Tax Credit (ITC) for the first time, which could not be applied retrospectively as it curtailed vested rights. The court held that the substituted provisos inserted by the notification dated 08.02.2016 were not merely clarificatory but introduced a new provision for forfeiture of ITC, which affected the vested rights of the dealers. Therefore, the retrospective effect given to these provisos was declared ultra vires and was set aside. The court declared that these provisions would have prospective effect from 08.02.2016 onwards. Issue III: Constitutionality of Amendment to Section 18(8) The amendment to Section 18(8), which denied ITC on goods consumed or burnt up in the manufacturing process and not existent in the finished product, was challenged as being violative of Article 14 of the Constitution. The court held that the amendment was based on reasonable classification and intelligible differentia, distinguishing between raw materials found in the finished product and those consumed or burnt up. The court found the amendment to be within the legislative competence of the State Government and not violative of Article 14, thus upholding its constitutionality. Issue IV: Legality of Retrospective Application of Rule 26(11A) The retrospective application of Rule 26(11A) under the JVAT Rules was challenged on the ground that the State Government did not have the power to frame rules with retrospective effect. The court held that Section 94 of the JVAT Act did not confer any power on the State Government to frame rules with retrospective effect. The court declared that the retrospective effect given to Rule 26(11A) was ultra vires and set it aside, stating that the rule would have only prospective operation from 17.02.2017 onwards. Issue V: Workability of Amended Provisions in Absence of Machinery Provisions The court addressed the issue of the workability of the amended provisos in the absence of machinery provisions for the period from 23.09.2015 to 16.02.2017. It was held that in the absence of machinery provisions, no assessment or forfeiture of ITC could be sustained. The court cited several Supreme Court decisions emphasizing the necessity of machinery provisions for the assessment of taxes. The court declared that for the period from 23.09.2015 to 16.02.2017, the provisos inserted in Section 18(4)(ii) and (iii) could not be given effect to, and any assessment or forfeiture of ITC during this period was declared illegal and quashed. Summary of Judgment: 1. The challenge to the proviso inserted to clause (ii) and (iii) of sub-section 4 of Section 18 of the JVAT Act was not pressed during arguments. 2. Retrospective effect given to the proviso inserted to clause (ii) and (iii) of sub-section 4 of Section 18 of the JVAT Act was set aside and struck down, with the provision declared to have prospective effect from 08.02.2016. 3. The amendment to clause (xviii) of sub-section 8 of Section 18 of the JVAT Act was upheld as intra vires and within the legislative competence of the State Government. 4. The retrospective effect given to Rule 26(11A) of the JVAT Rules was quashed and set aside, with the rule declared to have only prospective operation from 17.02.2017. 5. For the period from 23.09.2015 to 16.02.2017, the provisos inserted in Section 18(4)(ii) and (iii) could not be given effect to in the absence of machinery provisions, and any assessment or forfeiture of ITC during this period was quashed and set aside. All 98 writ applications were allowed in part, to the extent indicated above.
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